Installment Sales for S Corp.Assets

[Joe-Serrone-EA]

I have a client that disposed of some of his tangible S Corp. Assets and will be eligible for installment sales. I would like some clarification how the Form 6252 flows to the 1120S and subsequently to the K1. Once I complete the Form 6252 and find the Gross profit percentage this portion of the profit from the payments should be reported where exactly on the 1120S?

[Just-Lisa-Now-]

I'd make a copy of the return and pretend the sale happened in 2017, input the details and see how everything flows.

[TaxMonkey · Accepted solution]

For sale of business use property it goes from Form 6252, to Form 4797, to Form 1120S, on the K-1 it depends on exactly what the assets are, but likely they will will end up in box 9 - Net section 1231 gain.  Carefully consider the installment sale for depreciable property, all of the depreciation must be recaptured in the year of the sale, even if no payments have been received.

[Joe-Serrone-EA]

Thank you!

[eva]

I am curious about what you do with the S-Corp in an installment sale of let's say 10 years?  Do you keep the S-Corp open?  How do you account for subsequent cash payments on the note?  

Thank you very much,

Eva

[abctax55]

The note receivable can be distributed to the shareholder(s), just like any other asset.

[eva]

Excuse my ignorance, but where does the distributed Note Receivable show up on the final K-1?

[sjrcpa]

It will be included in Distributions. You may want to add a note about the payment terms, gross profit percent, etc.

[eva]

Thank you!

[eva]

Additional question: the business assets go to 6252, then to 4797, and then to the respective K-1's.

In my example, the restaurant client (two shareholders 50-50) sold the business for $140,000 on an installment sale.

They had tangible and intangible assets with net book value of about $74,000.

I tried to fill out 6252 first, entered the net asset value but then what to do with the individual assets on the Asset Worksheets since their value was not determined individually; the entire business with everything included was sold. 

Then I thought that I would enter the net book value as "sold" value first on the Asset Worksheets and tried to link it to 6252, but it was not allowable because the assets were considered sold at a loss.

How do I handle the individual Asset Worksheets and not duplicate values?

Thank you!